Income Tax Appellate Tribunal - Delhi
D.R. Vadera And Sons (Huf) vs Income-Tax Officer on 30 September, 1992
Equivalent citations: [1993]46ITD11(DELHI)
ORDER
M.A. Bakhshi, Judicial Member
1. This appeal is directed against the decision dated January 19, 1989, of the Commissioner of Income-tax (Appeals)-IV, New Delhi. This dispute in this case relates to initiation of proceedings under Section 147 and the assessment of income from house property let out to Air India.
2. The assessee-Hindu undivided family is the owner of the property No. A-2/26, Safdarjang Enclave, which is let out to Air India. The assessee filed the return of income on the basis of the actual rent received from the Air India. Assessment was completed by accepting that return under Section 143(1) on March 17, 1986. The Assessing Officer received information that the assessee had received complimentary tickets for visiting abroad from Air India as compensation for the low rental of Rs. 4,000 per month. Proceedings for reopening of the assessment had accordingly been initiated by issue of notice under Section 148. The assessee had challenged the validity of the proceedings. However, the Assessing Officer rejecting the objection made an addition of Rs. 1,17,170 to the disclosed income.
3. The assessee appealed to the Commissioner of Income-tax (Appeals) who has upheld the validity of the reopening of assessment. However, the addition to the tune of Rs. 35,152 alone was sustained by taking the economy fare in respect of three tickets as against the first class fare of Rs. 32,434 for five tickets taken by the Assessing Officer.
4. The Revenue is not in appeal against the decision of the Commissioner of Income-tax (Appeals). However, the assessee is aggrieved.
5. Learned counsel for the assessee contested the validity of the proceedings as well as the quantum of income. The learned Departmental Representative, on the other hand, supported the orders of the Revenue authorities.
6. We have given our careful consideration to the rival contentions. The first appellate authority has reproduced the contents of the agreement dated February 18, 1976, between the assessee and Air India reading as under :
"I am happy to confirm that to compensate you for the low rental of Rs. 4,000 per month which is being charged for the entire property, our headquarters have agreed to provide you with three round trip tickets Delhi/Amsterdam/Delhi per calendar year over the service of Air India's subsidiary company Air India Charterers Ltd.
It may be noted that this facility can be availed of only by you and immediate members of your family."
It is evident from the contents of the letter quoted above that the assessee was being compensated for the low rental of Rs. 4,000 per month by way of free tickets. Under Section 23 of the Act, the annual value of the property is deemed to be the sum for which the property might reasonably be expected to let from year to year or where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in Clause (a), the amount so received or receivable is deemed to be the annual value of the property. In this case, the actual rent received by the assessee in terms of money is Rs. 4,000 per month, but it is evident from the agreement itself that Rs. 4,000 is not the fair rental value of the property. The assessee has been compensated for the low rent paid by Air India by providing him free air tickets. It was, therefore, permissible for the Assessing Officer, to assess the annual letting value on the basis of the actual rent received and the compensation by way of air tickets. The Assessing Officer had assessed the value of tickets at Rs. 1,17,170, which has been considered by the first appellate authority as excessive. The value adopted by the Commissioner of Income-tax (Appeals) for the free air tickets is Rs. 35,152. In our view, whereas free air tickets provided to the assessee are to be taken into consideration for determining the annual letting value of the property, the full value of the tickets as such cannot be treated as part of the actual rent received by the assessee. A distinction has got to be made between the actual rent received and a perquisite by way of free air tickets. The value of the tickets has got to be discounted for the purposes of determination of the annual letting value of the property. The Assessing Officer had two options either to make enquiries and find out the actual annual value of the property for which the property could be let out to tenants. In the absence of such enquiry, the discounted value of the tickets could be taken as the rent received in addition to the amount received in cash. Since there is no material on record on account of actual annual letting value of the property, we, considering the fact that the value of free air tickets provided to the assessee was Rs. 35,152, consider a sum of Rs. 24,000 as a reasonable value to be added to the actual rent received by the assessee for determination of the annual letting value of the property. The gross annual letting value of the property thus would be Rs. 48,000 + Rs. 24,000 out of which the assessee would be allowed statutory deduction on account of house tax, repairs, ground rent, etc. We direct accordingly.
7. The validity of the proceedings under Section 147 is also upheld. In this case, the assessee had not made full disclosure of the facts before the Assessing Officer at the time of filing of the return. The Assessing Officer having received information about the assessee having been granted three free tickets of Air India in order to compensate for the low rental charged for the property, was justified in reopening the assessment under Section 147.
8. The appeal of the assessee is partly allowed.
A. Kalyanasundharam, Accountant Member
9. I have perused the order made by my learned brother in regard to the claim of the assessee-Hindu undivided family on the issue relating to the amount to be included in regard to the value of free tickets allowed by Air India for the assessee accepting a lower rental for the property which was let to Air India. I am unable to agree with the reasons as well as the conclusions arrived at by my learned brother for taking the perquisite value of the tickets instead of the value of the tickets as rent received by the assessee from Air India.
10. The facts clearly go to indicate that Air India had taken the property of the assessee on rental. As per the agreement, Air India had agreed to pay Rs. 4,000 per month in cash and also have agreed to provide the assessee with three round trip tickets, Delhi-Amsterdam-Delhi per year over the service of Air India subsidiary company Air India Charterers Ltd. which facility could be availed of only by the assessee and its immediate members. The assessee had challenged the inclusion of Rs. 35,152 representing the economy fare in respect of three tickets provided free to the assessee by the tenant. The assessee has not disputed the fact that the value of the free ticket so enjoyed by it was Rs. 35,152.
11. Section 23 of the Income-tax Act provides the manner of determination of the annual value of the property. This section is reproduced for the sake of facility :
"23. (1) For the purpose of Section 22, the annual value of any property shall be deemed to be-
(a) the sum for which the property might reasonably be expected to let from year to year ; or
(b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in Clause (a), the amount so received or receivable :
Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are borne by the owner, be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him."
12. In the instant case, there is no difference of opinion between me and my learned brother that the rental of Rs. 4,000 per month is not the actual rent and also there is no disagreement that the value of free tickets enjoyed by the assessee is one of the ways for compensating for the lower rent paid in cash. In my view, once there is an agreement up to this point, the obvious conclusion has to be that it is the value of the free tickets that would have to be treated as additional rent. My learned brother has observed that the full value of the tickets as such cannot be treated as part of the actual rent received by the assessee. He has further observed that a distinction should be made between the actual rent received and the perquisite by way of free air tickets. The reading of the section, in my view, does not allow the perquisite value being taken because the section does not provide for perquisites, its valuation, etc., as is provided for in the case of salaried employees under Section 17 of the Act. In my view, the annual rent received which is used in Section 23(1)(b) of the Act means not only the rent received in the shape of cash but also the rent that is received in kind. In the instant case, the rent that is received in kind is Rs. 35,152 being the value of the free tickets. Therefore, in my view, the rent or gross rental of the property would be Rs. 83,152 (Rs. 48,000-(4,000 X 12) + Rs. 35,152--value of free tickets) per annum. The appeal should have been dismissed as without any merit. I hold so.
ORDER OF REFERENCE TO THIRD meMBER M.A. Bakshi, Judicial Member
13. The Members could not agree on one of the issues and, accordingly, the point of difference raised in the shape of a question is being referred for the opinion of the third member :
"Whether, on the facts and in the circumstances of the case, the full value of the free air tickets provided to the assessee to compensate for low rent could be considered as part of the actual rent received for the purposes of Clause (b) of Section 23 of the Income-tax Act, 1961, or could it be considered only as a benefit (value to be estimated) allowed to the assessee to be taken into consideration for purposes of Clause (a) of Section 23, in determining the annual letting value of the property ?"
A. Kalyanasundharam, Accountant Member
14. The Members could not agree on one of the issues and accordingly the point of difference raised in the shape of a question is being referred for the opinion of the third Member :
"Whether, on the facts and in the circumstances of the case, the determination of the annual value of the property which is let has to be determined on the basis of rent received in cash plus rent received in kind equal to the value of the free tickets provided to the assessee or it has to be determined with reference to the rent that is received in cash and the perquisite value of the free tickets allowed to the assessee ?"
ORDER OF THIRD MEMBER G. Krishnamurthy, President
15. In this appeal filed by the assessee, there was a difference of opinion between the Members who heard this appeal. The point of difference of opinion was referred to me as a third Member. I have heard learned counsel for the assessee and the learned Departmental Representative and perused the records and I am of the opinion that the view expressed by the learned Judicial Member is more justified and acceptable than the view expressed by the learned Accountant Member.
16. Before I go to state the point of difference of opinion, I would like to refer in brief to the facts that gave rise to this difference of opinion. The assessee is a Hindu undivided family. It owned property. No. A-2/26, Safdarjang Enclave, New Delhi. It let out this property to Air India on a rent of Rs. 4,000 per month. During the course of assessment proceedings, the Assessing Officer received information that there was some correspondence between the assessee and Air India, i.e., the tenant, regarding the fixation of rent and, as a sequel thereof, Air India has agreed to provide the assessee with complimentary tickets for visiting abroad to compensate the assessee for the low rental of Rs. 4,000 per month. The Assessing Officer reopened the assessment under Section 148 and brought the value of these tickets, which was put at Rs. 1,17,170, as further rent of the assessee assessable under Section 23 of the Income-tax Act. The assessee also had taken an objection to the reopening of the assessment under Section 148 but that is not very relevant to this appeal.
17. The assessee then appealed to the Commissioner (Appeals). He upheld the validity of the reopening of the assessment. However, he reduced the addition to the tune of Rs. 35,152 only. I shall refer to some more facts at this stage. There was an agreement entered into between the assessee and Air India on February 18, 1976, which read as follows :
"I am happy to confirm that to compensate you for the low rental of Rs. 4,000 per month which is being charged for the entire property, our headquarters have agreed to provide you with three round trip tickets Delhi/Amsterdam/Delhi per calendar year over the service of Air India's subsidiary company Air India Charterers Ltd.
It may be noted that this facility can be availed of only by you and immediate members of your family."
While the Assessing Officer had valued these tickets to Delhi/ Amsterdam/Delhi, as I said earlier, at Rs. 1,17,170 on the basis that they were a first class tickets, the Commissioner (Appeals) brought it down to Rs. 35,152 on the view that it could be economy fare.
18. Aggrieved by this addition, the assessee has come up in appeal before the Tribunal. The Revenue was not in appeal against the decision of the Commissioner (Appeals). The contention urged before the Tribunal was that no addition should be made on account of the issue of free air tickets because it did not amount to any rent received by the assessee except that it was a facility provided which might or might not be availed of.
19. The learned Judicial Member took the view that, under Section 23 of the Income-tax Act, 1961, the actual rent received by the assessee should be taken as income and the sum of Rs. 4,000 as was evident from the. agreement was not the fair rental value of the property, that the assessee was compensated for the low rent paid by Air India by providing free air tickets. It was, therefore, permissible for the Assessing Officer to assess the annual letting value on the basis of the actual rent received together with the value of compensation by way of free air tickets. He was further of the opinion that, even though the value of the tickets has to be taken as part of the rent, in view of the peculiar nature of the issue of tickets and their utility which is uncertain, the value of the tickets had got to be discounted for inclusion. He then pointed out that, in a case of this nature, the Assessing Officer has got two options, either to enquire and find out the actual annual value of the property and bring that sum to tax or accept the discounted value of the tickets, add it to the actual rent received and adopt the aggregate of the two as the annual letting value of the property. Having regard to the facts, he considered that a sum of Rs. 24,000 could be a reasonable discounted value of the tickets and that amount should be substituted for the sum of Rs. 35,152 adopted by the Commissioner (Appeals). In other words, he reduced the income by Rs. 11,152 while, in principle, he confirmed the aggregation by including the value of the tickets as part of the rent.
20. The learned Accountant Member did not agree with this view. Placing reliance upon the language used in Section 23 of the Income-tax Act, he held that the entire value of the tickets must be taken as the additional rent provided by way of air tickets and the entire sum of Rs. 35,152 should be taken and not the discounted value of the tickets. He was of the opinion that the theory of perquisite is not available in computing the income from property and that was peculiar only to Section 17 of the Income-tax Act, dealing with assessment of income from salary. He was also of the opinion that if an assessee received by letting out his property rent both in cash and in kind, the entire value received in kind should be added and, therefore, the theory of discounting did not arise. Thus, the difference of opinion between the two Members was not as to whether the rent received in kind should be assessed to tax or not under Section 23 of the Income-tax Act, but as to the value to be put upon the rent received in kind. Both the members have interestingly in this case drafted what, according to them, was the difference of opinion. The learned Accountant Member had stated the difference of opinion in the following terms :
"Whether, on the facts and in the circumstances of the case, the determination of the annual value of the property which is let has to be determined on the basis of rent received in cash plus rent received in kind equal to the value of the free tickets provided to the assessee or it has to be determined with reference to the rent that is received in cash and the perquisite value of the free tickets allowed to the assessee ?"
The learned Judicial Member had put the difference of opinion in his own terms but, as I said earlier, the crux of the difference of opinion is about the value to be placed upon the rent received in kind.
21. Learned counsel for the assessee pleaded for the acceptance of the learned judicial Member's view while the learned Departmental Representative pleaded for the acceptance of the learned Accountant Member's view.
22. In my opinion, the answer to this piquant and interesting question lies nowhere else than in the language of Section 23(1) of the Income-tax Act. Section 23(1) provides :
"23. (1) For the purposes of Section 22, the annual value of any property shall, be deemed to be--(a) the sum for which the property might reasonably be expected to let from year to year ; or
(b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in Clause (a), the amount so received or receivable."
23. I am not referring to the other provisions of this section as they are not relevant for my present purpose. Section 23 states in Clause (a) that the annual value of the property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. It does not speak of actual rent received or receivable. Thus, Clause (a) deals only with a notional value to be estimated. If the notional value had been estimated as property might reasonably be expected to let from year to year, then there would be no difficulty at all and the question of valuing the tickets issued free would not have arisen because in the words "the sum for which the property might reasonably be expected to let from year to year", the entire value of the property has to be taken in whatever way the landlord was to be compensated by the tenant. But, here we are confronted with a situation arising in Clause (b) because it says where the property is let, which is a fact here, and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in Clause (a), the amount so received or receivable shall be taken to be the annual value of the property. Thus, Clause (b) makes it compulsory in a way to determine the annual value of the property under Clause (a) also. The annual value must be determined first under Clause (a) and then compare it with Clause (b) that is the actual rent received or receivable and find out which of the two was higher and adopt that higher value. This was not done in this case presumably on the impression that the actual rent received would be in excess of the sum referred to in Clause (a). Since the sum for which the property might reasonably be expected to let from year to year has to be arrived at as stated in Clause (a) and since Clause (a) must include the rent received in kind also, the value of the tickets should be converted into that sum, which would be capable of being received or receivable. The same idea is conveyed by Clause (b) also when it refers to the actual rent received or receivable. The expression "received or receivable" also refers to the rent capable of being received either in kind or in cash. The tickets issued by Air India, though by way of compensation, have no value to any other person other than the assessee or the immediate members of his family, i.e., they are not transferable. This non-transferability is a major discounting factor in the process of valuation. Secondly, it is not as if every year the assessee goes out by utilising these tickets to Amsterdam and comes back. Going out of India even though by free air tickets is fraught with lot of other expenditure. The free stay abroad is not guaranteed. Thus the utilisation of these tickets was heavily encumbered on the assessee. Thirdly, the user of these tickets is not compulsory. With these constraints present in every year, it cannot be said that the value of the tickets is the same and the sum capable of being received or receivable was always equivalent to the value of the tickets. Thus when Section 23 of the Income-tax Act speaks of the sum "received" or "receivable", they all refer to such "sum" which was capable of being received every year with a certain amount of certainty. The word "sum" used in Section 23 denotes an amount which the assessee can make use of in terms of utility. In the case of these tickets, though they have value, the receipt in terms of money or the advantage to the assessee in terms of money is uncertain. They have value only when used, and till then their value is contingent. Therefore, in such situations, the most appropriate and proper method is to take the discounted value as the benefit conferred upon the assessee but not the market value. There may be several methods to arrive at the discounted value. The variation in the methods of the discounted value is not the concern of this reference. The question, to put it succinctly, is as to whether the discounted value should be taken or the market value. When, in a case where the receipt of money in terms of tickets is so uncertain, the market value, i.e., the value equal to the money value of the tickets cannot be taken but only the discounted value should be taken. The hazards of converting the tickets into money or money's worth have to be provided for. It may be of interest to note that the assessee did not utilise all the tickets of earlier years nor of this year because he utilised only five tickets in this year. At the time of hearing, it was said that, in the subsequent year also, all the tickets could not be used. The value of the tickets which were not used is nothing but zero. Therefore, the discounted value of the tickets alone is the proper and rational method and has to be taken and not the market value. These are the reasons which weighed with me in agreeing with the view expressed by the learned Judicial Member.
24. The matter will now go back to the regular Bench for decision according to the majority opinion.